nep-bec New Economics Papers
on Business Economics
Issue of 2005‒02‒13
twenty papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. The Theory of the Firm and Its Critics: A Stocktaking and Assessment By Nicolai J. Foss; Peter G. Klein
  2. Advertising, Brand Loyalty and Pricing By Ioana Chioveanu
  3. The Stochastic Discount Factor: Extending the Volatility Bound and a New Approach to Portfolio Selection with Higher-Order Moments By Fousseni Chabi-Yo, René Garcia, and Eric Renault
  4. The impact of technological and organizatioanl changes on labor flows. Evidence on French establishments By Philippe, ASKENAZY; Eva, MORENO-GALBIS
  5. The impact of Union Power on the Optimal Income Tax Schedule By Mathias, HUNGERBUEHLER
  6. The Financing of Innovation: Learning and Stopping By Dirk Bergemann; Ulrich Hege
  8. Smart business networks: architectural aspects and risks By Pau, L-F.
  9. Temporary Jobs and On-the-Job Training in Sweden - A Negative Nexus? By Wallette, Mårten
  10. Ceiling and Floors: Gender Wage Gaps by Education in Spain By de la Rica, Sara; Dolado, Juan J.; Llorens, Vanesa
  11. How Transition Paths Differ: Enterprise Performance in Russia and China By Bhaumik, Sumon; Estrin, Saul
  12. The Impact of Ethical Ratings on Canadian Security Performance: Portfolio Management and Corporate Governance Implications By Klaus Fischer; Nabil Khoury
  13. Mental Health and Labor Force Exits in Older Workers: The Mediating or Moderating Roles of Physical Health and Job Factors By Linda A. Wray
  14. A Cross-National Comparison of the Employment for Men With Disabilities: The United States and Germany in the 1980s and 1990s” By Richard V. Burkhauser; Mathis Schröder
  15. Understanding the Impact of Oil Shocks By Luís Francisco Aguiar-Conraria; Yi Wen
  16. Predicting Customer Retention and Profitability by Using Random Forests and Regression Forests Techniques By B. LARIVIÈRE; D. VAN DEN POEL
  18. Statistical models for company growth By Jean-Philippe Bouchaud; Matthieu Wyart
  19. Alternative methodologies in studies on business failure: do they produce better results than the classic statistical methods? By Balcaen S.; Ooghe H.
  20. Opportunities for active stock-out management in online stores: The impact of the stock-out policy on online stock-out reactions By Breugelmans E.; Campo K.; Gijsbrechts E.

  1. By: Nicolai J. Foss; Peter G. Klein
    Abstract: Ever since its emergence in the 1970s the modern economic or Coasian theory of the firm has been discussed and challenged by sociologists, heterodox economists, management scholars, and other critics. This paper reviews and assesses these critiques, focusing on behavioral issues (bounded rationality and motivation), process (including path dependence and the selection argument), entrepreneurship, and the challenge from knowledge-based theories of the firm.
    Keywords: Coasian theory of the firm; Bounded rationality; Motivation; Entrepreneurship
    JEL: B4 D23 L14 L22
    Date: 2005
  2. By: Ioana Chioveanu
  3. By: Fousseni Chabi-Yo, René Garcia, and Eric Renault
    Abstract: The authors extend the well-known Hansen and Jagannathan (HJ) volatility bound. HJ characterize the lower bound on the volatility of any admissible stochastic discount factor (SDF) that prices correctly a set of primitive asset returns. The authors characterize this lower bound for any admissible SDF that prices correctly both primitive asset returns and quadratic payoffs of the same primitive assets. In particular, they aim at pricing derivatives whose payoffs are defined as non-linear functions of the underlying asset payoffs. The authors construct a new volatility surface frontier in a three-dimensional space by considering not only the expected asset payoffs and variances, but also asset skewness. The intuition behind the authors' portfolio selection is motivated by the duality between the HJ mean-variance frontier and the Markowitz mean-variance portfolio frontier. The authors' approach consists of minimizing the portfolio risk subject not only to portfolio cost and expected return, as usual, but also subject to an additional constraint that depends on the portfolio skewness. In this sense, the authors shed light on portfolio selection when asset returns exhibit skewness.
    Keywords: Financial markets; Market structure and pricing
    JEL: G11 G12 C61
    Date: 2005
  4. By: Philippe, ASKENAZY (CNRS AND CEPREMAP, Paris); Eva, MORENO-GALBIS (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper investigates the effect of organizational and technological changes on job stability of different occupations in France. We first develop a basic matching model with endogenous job destsruction. It provides a structure to the empirical analysis, where we extensively exploit a unique data set on a representative sample of French establishments. The adoption of information technologies is positively correlated to labor flows of blue collar workers while most of the new workplace organizational practices positively influence the managers’ turnover.
    JEL: J23 J41 J63 L23 O33
    Date: 2004–10–15
  5. By: Mathias, HUNGERBUEHLER (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and ERMES, Université Paris II)
    Abstract: We explain the positive correlation between union power and tax progressivity from a normative point of view by integrating labour market frictions and union power in an optimal taxation framework. We find that unions and redistributive taxation are complementary in the sense that they both create inefficiencies that weaken each other. We find that strong unions incease welfare and efficiency when the government faces in adverse selection problem when redistributing income.
    Keywords: Optimal Income Taxation; Unions; Matching
    JEL: D82 H21 J51 J64
    Date: 2004–10–19
  6. By: Dirk Bergemann (Yale University); Ulrich Hege (ESSEC Business School, CEPR)
    Abstract: This paper considers the financing of a research project under uncertainty about the time of completion and the probability of eventual success. We distinguish between two financing modes, namely relationship financing, where the allocation decision of the entrepreneur is observable, and arm's length financing, where it is unobservable. We find that equilibrium funding stops altogether too early relative to the efficient stopping time in both financing modes. The rate at which funding is released becomes tighter over time under relationship financing, and looser under arm's length financing. The trade-off in the choice of financing modes is between lack of commitment with relationship financing and information rents with arm's length financing.
    Keywords: Innovation, venture capital, relationship financing, arm's length financing, learning, time-consistency, stopping, renegotiation-proofness
    JEL: D83 D92 G24 G31
    Date: 2001–02
  7. By: Dani?evsk?, P.; Jong, A. de; Verbeek, M. (Erasmus Research Institute of Management (ERIM), Erasmus University Rotterdam)
    Abstract: This paper investigates three capital structure decisions ? leverage, debt maturity and the source of debt ? in a simultaneous setting. Moreover, we investigate whether these choices are influenced by the involvement of banks in a firm. Our results based on a panel of Dutch firms show that bank relationships, measured by interlocking board memberships and equity ownership, have a significant impact on the relations among the three capital structure choices. First, less bank involvement strengthens the positive impact of leverage on maturity. This is consistent with the liquidity risk theory, because involved banks help firms to mitigate liquidity risk. Second, bank debt negatively effects leverage in firms with bank interlocks, while this relation is absent in firms without such bank involvement. This result suggests that banks maximize the value of their loans by reducing overall leverage. Third, we find a strong trade-off between bank debt and maturity, which is independent of the degree of bank involvement.
    Keywords: capital structure;debt maturity;bank relationships;international economics;financial economics;source of debt;
    Date: 2004–06–23
  8. By: Pau, L-F. (Erasmus Research Institute of Management (ERIM), Erasmus University Rotterdam)
    Abstract: This paper summarizes key attributes and the uniqueness of smart business networks [1], to propose thereafter an operational implementation architecture. It involves, amongst others, the embedding of business logic specific to a network of business partners, inside the communications control networks .It also involves the definition of business protocols between these partners and the joint management of some common functions relying on open networking standards. This implies some key paradigm changes, both of a technical and of a business nature, which are offered here for discussion via a set of propositions.
    Keywords: smart business networks;control networks;SS7;P1520;business protocols;network architecture;mobile business;service level agreements;
    Date: 2004–12–01
  9. By: Wallette, Mårten (Department of Economics, Lund University)
    Abstract: This paper investigates temporary jobs and on-the-job training in the Swedish labour market during the 1990s. The analysis focuses on how the incidence and the amount of OJT differ between workers who hold temporary jobs vis-à-vis workers who hold open-ended jobs. An important aspect is also possible disparities between the genders, and between native Swedes and foreign-born workers. The results show that the incidence of OJT for temporary jobholders is lower than for corresponding open-ended jobholders. However, conditional on a worker receives OJT, it is not automatically the case that the amount of OJT is lower for all temporary jobholders. Further, the amount of OJT received by female workers is, in general, lower than for comparable male workers. Foreign-born workers (regardless of gender) have a lower incidence of OJT, but conditioned on that they receive OJT the amount is (for foreign born males in particular) often higher than for Swedish-born workers.
    Keywords: Temporary Jobs; On-the-Job Training; Incidence; Gender
    JEL: J21 J40 J50
    Date: 2005–01–31
  10. By: de la Rica, Sara (Universidad del País Vasco and IZA Bonn); Dolado, Juan J. (Universidad Carlos III, CEPR and IZA Bonn); Llorens, Vanesa (LECG Consulting Spain)
    Abstract: This paper analyses the gender wage gaps by education throughout the wage distribution in Spain using individual data from the ECHP (1999). Quantile regressions are used to estimate the wage returns to the different characteristics at the more relevant percentiles and a suitable version of the Oaxaca-Blinder decomposition is then implemented to estimate the component of the gender gap not explained by different characteristics. Our main findings are two-fold. First, in contrast with the steep pattern found for other countries, the flatter evolution of the gap in Spain hides a composition effect when the sample is split by education. On the one hand, for the group with college/tertiary education, we find a higher unexplained gap at the top than at the bottom of the distribution, in accordance with the conventional glass ceiling hypothesis. On the other, for the group with lower education, the gap is much higher at the bottom than at the top of the distribution. We label this novel pattern as glass floors and argue that it is due to statistical discrimination exerted by employers in view of the low participation rate of women in this group. Such a hypothesis is confirmed when using the panel structure of the ECHP.
    Keywords: gender gap, glass ceilings, glass floors, quantile regressions
    JEL: J16 J71
    Date: 2005–01
  11. By: Bhaumik, Sumon (Queen’s University Belfast); Estrin, Saul (London Business School and IZA Bonn)
    Abstract: We use enterprise data to analyse and contrast the determinants of enterprise performance in China and Russia. We find that in China, enterprise growth and efficiency is associated with rapid increases in factor inputs, but not correlated with ownership or institutional factors. However, in Russia, enterprise growth is not associated with increases in factor quantity (except for labor) or quality. The main determinants of company performance are instead demand and institutional factors at a regional level. We explore possible interpretations of these results, including the impact of institutional and managerial quality.
    Keywords: enterprise performance, privatization in Russia and China
    JEL: D23 L22 O12 P31
    Date: 2005–01
  12. By: Klaus Fischer; Nabil Khoury
    Abstract: One approach that is gaining in popularity among portfolio managers uses ethical ratings, published by specialized research organizations, to screen securities for portfolio selection. Portfolio managers can thus gain a better understanding of the phenomenon and adopt a better and more consistent approach to ethical investment. By the same token, board of directors can measure the impact of their ethical policies on the market performance of the stock of their company. This paper provides new evidence about the impact of ethical ratings published in Canada on the risk-adjusted returns of the securities concerned, within the framework of a multi-factor Capital Asset Pricing Model, and gives an interpretation of the results from the perspective of portfolio composition and of corporate governance.
    Keywords: Ethical Ratings and Security Performance
    JEL: G11
    Date: 2005
  13. By: Linda A. Wray (Pennsylvania State University)
    Abstract: This paper extends earlier health and work studies by examining how mental health affects transitions out of paid work in the years prior to the traditional Social Security retirement ages. Given recent changes in the labor market, optimal mental health may be as important a prerequisite for continuing employment as good physical health. This study uses data from the Health and Retirement Study to examine how mental health is linked to transitions to early retirement or other unemployment in 1996 for middle-aged adults who were currently working in 1992 and whether physical health, job, or sociodemographic factors affect those links. The study results indicated that mental health plays a strong and significant role in the move from paid work to other unemployment in three ways, net of other documented health, job, and sociodemographic correlates of work status. First, higher baseline CES-D depressive symptoms predicted the transition to retiree in male workers. Second, increased CES-D depressive symptoms between 1992 and 1994 (net of baseline symptoms) predicted exits from paid employment and into other unemployment by 1996. Finally, low job autonomy did not have the hypothesized moderating effect on the mental health-work status link. The results also indicated that mental health may be an even more important predictor of transitions out of paid work among middle-aged workers than are physical health and functioning and that patterns of labor force exit differ for men and women.
    Date: 2003–06
  14. By: Richard V. Burkhauser (Cornell University; German Institute for Economic Research (DIW), Berlin); Mathis Schröder (Cornell University)
    Abstract: Using a single period measure to capture the population with disabilities in the Panel Study of Income Dynamics we observe the same dramatic decline in the relative employment rate of working age people with disabilities in the 1990s that is found in the Current Population Survey. We find that the trends in these two data sets are not significantly different over the 1980s and 1990s. This is also the case when we use longitudinal aspects of the PSID to develop long duration disability populations. Using similar methods we compare the levels and trends in the relative employment of working age men with disabilities in Germany using data from the German Socio- Economic Panel. We find that while the relative employment rates of men with disabilities fall dramatically in both countries, the timing of these falls is not the same. Relative employment rates for German men with disabilities fell in the late 1980s but were constant over the 1990s while the opposite occurred in the United States. We argue that these differences in timing are more likely to be caused by differences in the timing of changes in the social environment these men faced than in differences in the timing of changes in the severity of their work limitations in the two countries.
    Date: 2004–01
  15. By: Luís Francisco Aguiar-Conraria (Universidade do Minho - NIPE); Yi Wen (Department of Economics - Cornell University)
    Abstract: This paper provides new empirical evidence on and theoretical support for the close link between oil prices and aggregate macroeconomic performence in the 1970s. Although this link has been well documented in the empirical literature and is further confirmed in this paper, standard economic models are not able to replicate this link when actual oil prices are used to stimulate the models. In particular, standard models cannot explain the depht of the recession in 1974-75 and the strong revival in 1976-78 based on the oil price movements in that period. This paper argues that a missing multiplier-accelerator mechanism from standard models may hold the key. This multipliplier-accelerator mechanism not only exacerbated the impact of the oil schocks in 1973-74 but also helped create the temporary recovery in 1976-1978. This paper derives the missing multiplier-accelarator mechanism from externalities in general equilibrium. Our calibrated model can explain both the recession in 1974-75 and revival in 1976-78.
    Keywords: Oil price shocks, Real business cycle, indeterminacy, capacity utilization, externalities, monopolistic competition.
    JEL: E32 E37 E22
    Date: 2005
    Abstract: In an era of strong customer relationship management (CRM) emphasis, firms strive to build valuable relationships with their existing customer base. In this study we attempt to better understand three important measures of customer outcome: next buy, partial defection and customers’ profitability evolution. By means of random forests techniques we investigate a broad set of explanatory variables, including past customer behavior, observed customer heterogeneity and some typical variables related to intermediaries. We analyze a real-life sample of 100,000 customers taken from the data warehouse of a large European financial services company. Two types of random forests techniques are employed to analyze the data: random forests are used for binary classification, whereas regression forests are applied for the models with linear dependent variables. Our research findings demonstrate that both random forests techniques provide better fit for the estimation and validation sample compared to ordinary linear regression and logistic regression models. Furthermore, we find evidence that the same set of variables have a different impact on buying versus defection versus profitability behavior. Our findings suggest that past customer behavior is more important to generate repeat purchasing and favorable profitability evolutions, while the intermediary’s role has a greater impact on the customers’ defection proneness. Finally, our results demonstrate the benefits of analyzing different customer outcome variables simultaneously, since an extended investigation of the next buy - partial defection - customer profitability triad indicates that one cannot fully understand a particular outcome without understanding the other related behavioral outcome variables.
    Keywords: Data mining, Customer relationship management, Customer retention and profitability, Random forests and regression forests.
    Date: 2004–12
  17. By: N. A. DENTCHEV
    Abstract: The literature on strategic integration of corporate social responsibility (CSR) in business models is still underdeveloped. We therefore borrow from the theory on strategic management to organize this contribution according to the process of strategic management. After a review of the few strategic CSR approaches, an explorative case-study methodology is adopted to study the management of a CSR proxy, viz. Health Safety and Environment (HSE), in a multinational company in the petrochemicals. This study provides insight into what actions a company takes at every stage of CSR management, into the strategic logic of these actions, and into the different challenges the company faces. Overall, we can argue that CSR management is a challenging task for practitioners and has a strategic relevance for their firms.
    Keywords: business models, corporate social responsibility, qualitative research, strategic management process.
    Date: 2005–01
  18. By: Jean-Philippe Bouchaud (Science & Finance, Capital Fund Management; CEA Saclay;); Matthieu Wyart (CEA Saclay;)
    Abstract: We study Sutton's `microcanonical' model for the internal organisation of firms, that leads to non trivial scaling properties for the statistics of growth rates. We show that the growth rates are asymptotically Gaussian in this model, at variance with empirical results. We also obtain the conditional distribution of the number and size of sub-sectors in this model. We formulate and solve an alternative model, based on the assumption that the sector sizes follow a power-law distribution. We find in this new model both anomalous scaling of the variance of growth rates and non Gaussian asymptotic distributions. We give some testable predictions of the two models that would differentiate them further. We also discuss why the growth rate statistics at the country level and at the company level should be identical.
    JEL: G10
  19. By: Balcaen S.; Ooghe H.
    Abstract: Over the last 35 years, the topic of company failure prediction has developed to a major research domain in corporate finance. Academic researchers from all over the world have been developing a gigantic number of corporate failure prediction models, based on various types of modelling techniques. Besides the classic cross-sectional statistical methods, which have produced numerous failure prediction models, researchers have also been using several alternative methods for analysing and predicting business failure. To date, a clear overview and discussion of the application of alternative methods in corporate failure prediction is still lacking. Moreover, frequently, different designations or names are used for one method. Therefore, this study aims to provide a clear overview of the alternative research methods, attributing each of them a fixed designation. More in particular, this paper extensively elaborates on the most popular methods of survival analysis, machine learning decision trees and neural networks. Furthermore, it discusses several other alternative methods, which can be considered to have a certain value added in the empirical literature on business failure: the fuzzy rules-based classification model, the multi-logit model, the CUSUM model, dynamic event history analysis, the catastrophe theory and chaos theory model, multidimensional scaling, linear goal programming, the multi-criteria decision aid approach, rough set analysis, expert systems and self-organizing maps. This paper discusses the main features of these methods and their specific assumptions, advantages and disadvantages and it gives an overview of a number of academically developed corporate failure prediction models. Several issues viewed in isolation by earlier studies are here considered together, which is of major importance for gaining a clear insight into the possible alternative methods of corporate failure modelling and their corresponding features. A second aim of this paper is to find an answer to the question whether the more sophisticated, alternative modelling methods produce better performing failure prediction models than the rather simple classic statistical methods. The analysis of the conclusions of a large number of empirical studies comparing the classification results and/or the prediction abilities of failure prediction models based on different techniques seems to indicate that we may question the benefits to be gained from using the more sophisticated alternative methods.
    Date: 2004–08–21
  20. By: Breugelmans E.; Campo K.; Gijsbrechts E.
    Abstract: This paper investigates the impact of an online retailer’s stock-out policy on purchase incidence and choice. We make a distinction between three policies: (1) stock-outs are immediately visible and there are no suggestions, (2) stock-outs are only visible after clicking and (3) a replacement item is suggested for each stock-out product. Results from an extensive and realistic online grocery shopping experiment reveal that the adopted stock-out policy has a significant impact on both decisions. First, making stock-outs not immediately visible creates confusion and intensifies the consumer’s loss experience, thereby reducing the tendency to buy in the category. Second, while suggesting a replacement item normally leads to a substantial increase in the item’s choice probability, this effect is canceled out when higher-priced – suspicious – items are suggested. Overall, these results indicate that retailers have an interest in pursuing open and convenience-oriented stock-out policies.
    Date: 2005–02

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